(Non-)Insurance Markets, Loss Size Manipulation and Competition: Experimental Evidence*

Jeroen Hinloopen*, Adriaan R. Soetevent

*Corresponding author for this work

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Abstract

The common view that insurer buyer power may effectively counteract provider market power critically rests on the idea that consumers and insurers have a joint interest in pushing for price and cost reductions. We develop theory and provide experimental evidence that the interests of insurers and consumers may be misaligned when insurers have the power to influence the service supplier's cost. Insurers with such buyer power may benefit from increasing initial loss sizes to create demand for insurance. Insurer competition eliminates their profits but markets do not return to the initial non-insurance state. This constitutes a welfare loss.

Original languageEnglish
Pages (from-to)819-856
Number of pages38
JournalJournal of Industrial Economics
Volume68
Issue number4
Early online date9-Nov-2020
DOIs
Publication statusPublished - Dec-2020

Keywords

  • ESTIMATING RISK PREFERENCES
  • INSURANCE MARKETS
  • BUYER POWER
  • EXPERIMENT
  • RISK ELICITATION

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